With the fall season for investment conferences kicking off within the first days after Labor Day, it also means that new C.H. Robinson CEO Dave Bozeman is taking to the road to make his case about how to engineer a rebound at the country’s largest 3PL.
At the TD Cowen conference in Boston Thursday, Bozeman returned to many of the same themes that he addressed during his first quarterly earnings call with analysts in August, though with another month of experience under his belt. Bozeman took the helm at C.H. Robinson June 26.
And for a company that already has engaged in several rounds of layoffs, the message came back again that Bozeman will be looking at costs and head count while expecting technology gains to replace the lost production from workers when the freight market rebounds, which he does not foresee until 2024.
“I put out a challenge to the entire company which I called the ‘impede your speed’ challenge,” Bozeman said. The CEO was looking for input from employees as to what aspects of C.H. Robinson was impeding their speed in delivering services to their customers. Bozeman said he expected to get about 350 responses and instead got 3,400 from 2,400 employees.
“What does that say?” Bozeman said. “That this is a company that has people in it that want to win, that like to win and to have ideas to help.”
Using AI will be part of that solution, Bozeman said. But another aspect of his approach will be to use the lean management process.
According to the Institute for Leadership Excellence, “This model of improving the work process by those who do the work, by those who are on-the-spot, is the essence of lean management.” The work team is asked to “think, to experiment, and to learn from the data. It is management that is humble and not arrogant. It is management that observes, encourages, challenges, and learns.” The term “continuous improvement” also comes up repeatedly in describing lean management.
Lean “reduces waste” and cuts down on “manual touches,” Bozeman said. “It’s a big opportunity for us going forward, especially at our scale.”
Combining that with the capabilities of a “large language” model like generative AI “is game changing for a company like Robinson and we’re leaning into that,” Bozeman said. The vast amount of information that comes into C.H. Robinson every day can be looked at by workers and with the help of AI “can make that clean data tomorrow.”
So far at C.H. Robinson, Bozeman sees “leaders actually implementing [lean management] within their business lines. I’m pretty happy about it because it’s a direct learning, of understanding how to see waste.”
Lean utilizes a tool called value stream mapping. The Institute for Leadership Excellence defined it as “diagraming every step involved in the material and information flows needed to bring a product from order to delivery. It is a fundamental tool used in continuous improvement to identify and eliminate waste.”
And Bozeman, discussing the progress lean management is making at C.H. Robinson (NASDAQ: CHRW), said, “I’ve never seen anyone go through a value stream map and not come out with opportunities to reduce waste.”
At the Cowen meeting, CFO Mike Zechmeister said the cost-cutting steps at C.H. Robinson were originally envisioned to result in annualized savings of $150 million if the company hit the run rate of the third quarter of 2022, when revenue was $4 billion with an operating ratio of 32.4%, compared to second-quarter 2023 figures of $3 billion and 19.9%.
But instead, the cost cuts have resulted in savings that are on target to be at an annualized basis of $300 million, Zechmeister said. He reiterated what the company said on its second-quarter earnings call: that a goal of a 15% improvement in productivity in 2023 had already reached 12% through the first half of the year.
“I think we’ve got a lot going on in taking touches out, making our system more efficient and really continuing that investment during the tough part of the market,” Zechmestier said, adding that despite the troubled freight market, C.H. Robinson continues to generate free cash flow “and get us in position to be stronger when we come out.”
C.H. Robinson was making its appearance just about a week after a downgrade to its stock, as well as that of publicly traded 3PL RXO (NYSE: RXO), by Susquehanna Financial Group. Both companies had their outlook downgraded to negative, while Landstar (NASDAQ: LSTR), part 3PL, part asset company, saw its rating from Susquehanna hold at neutral.
The C.H. Robinson stock is down about 5.2% since then.
The core of the Susquehanna message was that freight demand is “seasonal at best, very little spot volume, contract rates pressured until spring bid season and truckload capacity stubbornly priced with spot rates below operating costs.”
In its report, Susquehanna also said that C.H. Robinson’s business is about 20% based on LTL brokerage, where the pricing power continues to shift as a result of the closure of LTL carrier Yellow. That level of activity was called “moderate” by Susquehanna.
Susquehanna referred to several signs that a bottom might be reached. Retail destocking “is near its end,” the analysis firm said, and there is data suggesting that truck transportation volume might be back at a seasonal norm.
“But we believe it will take upside holiday sales to lift the cycle meaningfully into 2024,” Susquehanna said.
Susqehanna also said routing guide depths remain at about 1.1 to 1.2 for C.H. Robinson, meaning shippers usually only need to go slightly past their contracted carriers in their routing guides to find capacity. That is a six-year low for Robinson.
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